Back in late 2006 and early 2007 a few (soon to be very rich) people were warning anyone who cared to listen, about what cracks in the subprime facade meant for the housing sector and the credit bubble in general. They were largely ignored as none other than the Fed chairman promised that all is fine (see here). A few months later New Century collapsed and the rest is history: tens of trillions later we are still picking up the pieces and housing continues to collapse. Yet one bubble which the Federal Government managed to blow in the meantime to staggering proportions in virtually no time, for no other reason than to give the impression of consumer releveraging, was the student debt bubble, which at last check just surpassed $1 trillion, and is growing at $40-50 billion each month. However, just like subprime, the first cracks have now appeared. In a report set to convince borrowers that Student Loan ABS are still safe - of course they are - they are backed by all taxpayers after all in the form of the Family Federal Education Program - Fitch discloses something rather troubling, namely that of the $1 trillion + in student debt outstanding, "as many as 27% of all student loan borrowers are more than 30 days past due." In other words at least $270 billion in student loans are no longer current (extrapolating the delinquency rate into the total loans outstanding). That this is happening with interest rates at record lows is quite stunning and a loud wake up call that it is not rates that determine affordability and sustainability: it is general economic conditions, deplorable as they may be, which have made the popping of the student loan bubble inevitable. It also means that if the rise in interest rate continues, then the student loan bubble will pop that much faster, and bring another $1 trillion in unintended consequences on the shoulders of the US taxpayer who once again will be left footing the bill.

From Fitch:

Fitch believes most student loan asset-backed securities (ABS) transactions remain well protected due to the government guarantee on Family Federal Education Program (FFELP) loans. The Federal Reserve Bank of New York recently reported that as many as 27% of all student loan borrowers are more than 30 days past due. Recent estimates mark outstanding student loans at $900 billion- $1 trillion. Fitch believes that the recent increase in past-due and defaulted student loans presents a risk to investors in private student loan ABS, but not those in ABS trusts backed by FFELP loans.

These loans can't be discharged in bankruptcy can they? If you can't pay I'm not sure how they could force you especially if your job is flipping burgers after getting that MA.

Share this post

Link to post

Share on other sites

Coming to a country near you as they steadily ramp up the loans over here. I think the education bubble has well and truly popped in the US.

Increasingly, higher education doesn't pay. Which is a damn shame as it used to be one of the few ways; poor, clever, lucky kids could get out of poverty. Nowadays, it feels more and more like you are paying for your own dole for 3 years.

Share on other sites

U.S. student-loan debt reached the $1 trillion mark, as young borrowers struggle to keep up with soaring tuition costs, according to the initial findings of a government study.

..

“Young consumers are shouldering much of the punishment in the form of substantial student-loan bills for doing exactly what they were told would be the key to a better life,” Chopra, the bureau’s student-loan ombudsman, said in the posting.

..

More students are taking out loans to pay for college as tuition increases. Undergraduates are limited by the amount they can borrow in federally backed loans. Students also take out private loans, which lack the income-based repayment and deferment options of federal ones

Share this post

Link to post

Share on other sites

Coming to a country near you as they steadily ramp up the loans over here. I think the education bubble has well and truly popped in the US.

Increasingly, higher education doesn't pay. Which is a damn shame as it used to be one of the few ways; poor, clever, lucky kids could get out of poverty. Nowadays, it feels more and more like you are paying for your own dole for 3 years.

Combine that with the increasing use of unpaid internships as a stepping stone to a "real" job, and yes, you have the poor being very carefully kept in their stations.

Bye bye meritocracy, it was nice knowing you.

Share this post

Link to post

Share on other sites

Increasingly, higher education doesn't pay. Which is a damn shame as it used to be one of the few ways; poor, clever, lucky kids could get out of poverty. Nowadays, it feels more and more like you are paying for your own dole for 3 years.

Link to post

Share on other sites

These loans can't be discharged in bankruptcy can they? If you can't pay I'm not sure how they could force you especially if your job is flipping burgers after getting that MA.

I think it's probably a breach of human rights for any interest-bearing loan to be excluded from established personal insolvency procedures. Even more so if the government sells on the loan book to the private sector like a sub-prime lending mortgagee.

Is it because they're worried about them not being repaid or is it because if 50% of students, on graduation, marched down to the bankruptcy court, through credit-scoring, they'd be unable to take on fresh bank debt, like mortgages and car finance, and then that ponzi house of cards woud collapse.